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Natural Gas Slides on Outlook for Moderating U.S. Weather

Nov. 7 (Bloomberg) -- Natural gas futures dropped in New York as meteorologists predicted a shift to above-normal temperatures after wintry weather in the eastern U.S. this week.

Gas fell 1.1 percent after forecasters including WSI Corp. in Andover, Massachusetts, said the weather will be warmer than normal in the Northeast from Nov. 12 through Nov. 16. Stockpiles of the fuel rose to a record 3.908 trillion cubic feet in the week ended Oct. 26, Energy Department data show.

“The market is going to have trouble rallying with these milder temperatures,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Inventories are still going to be at an all-time record.”

Natural gas for December delivery fell 3.9 cents to settle at $3.578 per million British thermal units on the New York Mercantile Exchange. Prices are down 3.2 percent from a year ago. Gas rose to $3.82 on Oct. 30, the highest intraday price since Nov. 4, 2011.

December $3.50 puts were the most active gas options in electronic trading. They were 1.1 cents higher at 8 cents on volume of 256 contracts as of 3:39 p.m. Puts accounted for 43 percent of options volume.

The low in New York on Nov. 12 may be 52 degrees Fahrenheit (11 Celsius), 9 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Boston may be 56 degrees, 17 more than the usual reading.

Heating demand in the Northeast may be 21 percent below normal from Nov. 13 through Nov. 17, data from Weather Derivatives in Belton, Missouri, show. About 50 percent of U.S. households use gas for heating, according to the Energy Department.

Winter Outlook

A lack of Pacific Ocean warming and of blocking patterns in the Atlantic will probably mean warmer-than-normal weather in the eastern U.S. for the next three months, Todd Crawford, chief meteorologist at WSI, said in an Oct. 22 seasonal forecast. Temperatures in the East may be about 2 degrees Fahrenheit above normal from November through January, while the Northwest cools, Crawford said.

Marketed gas production will average a record 68.84 billion cubic feet a day this year, up 4 percent from 2011, the Energy Department said yesterday in its monthly Short-Term Energy Outlook. The department’s forecast for total gas consumption fell to 69.75 billion cubic feet a day from 69.76 billion predicted last month.

The number of rigs drilling for natural gas in the U.S. rose by eight to 424 last week, according to data released Nov. 2 by Baker Hughes Inc. in Houston. The rig count is down 48 percent this year.

Gas Drilling

“EIA expects that growth in associated gas from crude oil, as well as continued drilling in liquids-rich areas, will help offset the decline in drilling activity,” the department’s Energy Information Administration said in the outlook.

Department data scheduled for release tomorrow at 10:30 a.m. in Washington may show that gas inventories rose 26 billion cubic feet to a record 3.934 trillion in the week ended Nov. 2, according to the median of 21 analyst estimates compiled by Bloomberg. The five-year average change for the week is a gain of 36 billion, department data show.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first six months of the year, department data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.

Carbon Tax

Barack Obama may consider introducing a tax on carbon emissions to help cut the U.S. budget deficit after winning a second term as president, according to HSBC Holdings Plc.

A tax starting at $20 a metric ton of carbon dioxide equivalent and rising at about 6 percent a year could raise $154 billion by 2021, Nick Robins, an analyst at the bank in London, said today in an e-mailed research note, citing Congressional Research Service estimates. “Applied to the Congressional Budget Office’s 2012 baseline, this would halve the fiscal deficit by 2022,” Robins said.

Natural gas emits about half the carbon dioxide of coal on an energy-equivalent basis, according to the Energy Department.

Gas futures volume in electronic trading on the Nymex was 207,161 as of 2:41 p.m., compared with the three-month average of 381,000. Volume was 257,149 yesterday. Open interest was 1.18 million contracts. The three-month average is 1.13 million.

The exchange has a one-business-day delay in reporting full volume and open interest data.

To contact the reporter on this story: Christine Buurma in New York at;

To contact the editor responsible for this story: Dan Stets at

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